The Risks of Cash Payments for Property Managers

What exactly is the inherent risk?

Inherent risk describes the risk of loss due to the nature of the property owners' business organization. It primarily arises from errors in omission, wrongful statements or misleading information in a financial statement—these arising from factors other than a failure of audit controls. There are many instances where this can occur with accepting cash payments.

The risk of paying rent in cash

Until the recent past, cash transactions were the bedrock of the real estate sector. Tenants paid their bills in cash, rent, water, electricity, gas, etc. However, with the computerization of financial systems, the adoption of cashless payments for utilities was quickly embraced as the world progressively marches towards a cashless economy. Debit and credit card payments have spearheaded trends in the cashless and online payment of rent, which are at the center of consumer culture. Additional modes of e-payment have also been on the rise, and the transition to such payment methods has been nothing but seamless. Bearing in mind the robustness of these online payment systems, the use of cash has been relegated to more of a risk than an advantage in the real estate sector. Payment of rent in cash is inconvenient to both landlords and tenants and proliferates inherent risks as discussed below:

A risk to the security of both the tenant and rental property management

The degree of physical risk emanating from paying rent in cash can not be understated. Transactions involving cash in the payment of rent draw a high potential for crime. More distinctly, this risk exponentially increases during the particular time when property managers expect to receive payment from their tenants who pay rent in cash.

This is seen to present significant problems for property management. Why? First and foremost, most property managers collect rent during a specific time of the month, particularly at the beginning of the month. Most property managers prefer this timing since it relieves them of remembering who owes what and when by concertedly accepting rent over a specific period within the month. Criminals are well aware of this. Therefore, accepting large sums of cash for payment of rent on a particular day potentially exposes property managers to incidents of well-organized robberies. Additionally, keeping large sums of cash is by and large considered a safety hazard. Also, paying out large cash amounts for rent and receiving a generic receipt is unsettling to most tenants due to the uncertain nature of returns of cash payments.

Risk management

Good risk management requires that businesses identify and mitigate every potential risk. As a result, paying rent in cash at a property manager’s office is undoubtedly regarded as a high risk. Therefore, these managers are forced to improve the security measures to reduce the risk of loss from robbery attempts perpetrated toward their business premises.

This means that they have to purchase additional safety measures in the range of safes, secure cash counting areas, and invest in security reinforcements such as locks, bars, doors and alarms. They may also require to employ security guards. These measures may effectively prevent theft but incur extra costs for their execution, potentially cutting into the businesses' profits. Making the rental office cash-free can boost safety and help avoid expensive security measures. Therefore, insightful property managers should question the cash process and determine whether handling cash is worth the financial implications.

The dangers associated with physically interacting with violent tenants

Since we live in an increasingly dangerous society, property managers who accept payments in cash face the risks of running into violent tenants. Regardless of the requisite background checks done on potential tenants by property managers, the risk of encountering uncouth tenants is still persistent.

The potential compromise of accountability

Another limitation of accepting payment of rent in cash is pertinent to the records that are kept following a cash payment. Online credit card payments are digitized immediately and stored in an online ledger.  Cash payments are not automatically digitized, entry into a tracking system would need to be done manually, and as a consequence, there is a significant amount of room for human error. In case of inconsistencies with the figures, the business could face significant problems. Genuine errors may cause such inconsistencies, for example if the property manager or their employees misplaced the cash. Or what if a tenant claims to have dropped the cash for rent off in a drop-box, but it is unaccounted for? Such loss of cash could hinder an otherwise good relationship with a resident. On the flip side, how much easier and more efficient would it be to use a online payment system? 

Property Management Software with e-payment solutions

In response to the adverse implications of tenants paying rent in cash, the best alternative to consider is using property management software with a provision for an E-Payment system that can accept and process tenants’ rent payments online, according to Liggio & Haggerty. ExactEstate is an example of such a model that allows instant and secure payment of rent.

Our services are seamless and guarantee efficient payment of rent by debit, credit or Automated Clearing House (ACH). Our operation mode is far superior to other service providers in the market considering their low processing fees, which benefit our users. This ensures that both tenants and property managers are satisfied while using our system. 

Benefits accrued from the use of such property management systems

• Convenience and security for tenants and property managers -- Tenants can make rent payments electronically and safely through allocated retailers at their convenience.
• Time-efficiency -- Property managers do not necessarily need to be physically present at their offices to confirm transactions allowing for efficient use of their time.
• Help properties eliminate internal fraud -- An online system for property management upholds security by recording transactions and tenant information, which is only available to the appropriate parties. This promotes transparency and accountability.
• Cash payment validation -- Tenants can make payments remotely. Regardless of the tenant's location, they can make rent payments securely and instantly.
• Real-time updates to tenant ledger -- According to Lai, real-time updates on payment status for tenants is better than having to wait for an employee to physically fill in the transaction details at the property manager’s office. Instant updates equate to happier residents living at your apartment community.

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